The level of inventory of a manufactured product has increased by 5,000 units during a period. The following data are also available: ⚫ Variable manufacturing costs per unit = $15.00 • Fixed manufacturing costs per unit = $8.00 ⚫ Variable operating expenses per unit = $5.00 ⚫ Fixed operating expenses per unit = $2.00 What would be the effect on income from operations if absorption costing is used rather than variable costing? a. $40,000 decrease b. $40,000 increase c. $50,000 increase d. $50,000 decrease

The level of inventory of a manufactured product has increased by 5,000 units during a period. The following data are also available: ⚫ Variable manufacturing costs per unit = $15.00 • Fixed manufacturing costs per unit = $8.00 ⚫ Variable operating expenses per unit = $5.00 ⚫ Fixed operating expenses per unit = $2.00 What would be the effect on income from operations if absorption costing is used rather than variable costing? a. $40,000 decrease b. $40,000 increase c. $50,000 increase d. $50,000 decrease

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 47E: Klamath Company produces a single product. The projected income statement for the coming year is as...

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The following income statement applies to Franklin Company for the current year: Income Statement Sales revenue (410 units × $31) Variable cost (410 units × $16) Contribution margin Fixed cost Net income Required a. Use the contribution margin approach to calculate the magnitude of operating leverage. b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Franklin Company will earn If It experiences a 10 percent increase in revenue. The sales price per unit is not affected. c-1. Verify your answer to Requirement b by constructing an income statement based on a 10 percent increase in sales revenue. The sales price is not affected. c-2. Calculate the percentage change in net income for the two income statements. Req A and B Complete this question by entering your answers in the tabs below. Req C1 a. Operating leverage b. Net income $ $12,710 (6,560) 6,150 (4,100) $2,050 > Answer is complete but not entirely correct. Req C2 a. Use the…